Newstex script

October 27, 2014

Earlier this year we reported on a jury verdict in federal court in Sacramento that awarded $22.2 million in compensatory damages and $17.4 million in punitive damages. That verdict was apparently based on allegations that the defendant railroad breached a nondisclosure agreement and improperly poached the plaintiff railroad's clients.

Now the Sacramento Bee is reporting that the judge in the case, U.S. District Judge Troy L. Nunley, has awarded another $13.1 million in exemplary damages for the defendant's violations of California trade secrets law. That claim was apparently tried to the court after the conclusion of the jury trial. According to the story, Judge Nunley believed the award was appropriate because California courts have held that "an exemplary damage award of 17.5 percent of an offending company's value is sufficient to punish extremely reprehensible conduct."

I haven't yet been able to read Judge Nunley's opinion, but presumably he pulled the 17.5 percent number from a 1984 case called Devlin v. Kearny Mesa AMC/Jeep/Renault, Inc. In that case, the court affirmed an $80,000 punitive damages award that happened to be 17.5% of the defendant's net worth. But the court certainly did not announce a rule that punitive damages should be 17.5 percent of the defendant's net worth when the defendant's conduct was highly reprehensible. And in the years since Devlin, other California courts have held that punitive damages are presumed to be excessive when they exceed 10 percent of the defendant's net worth. (See, e.g., Grassilli v. Barr.) In any event, it's hard to imagine how the purely economic harm in this business dispute could be characterized as highly reprehensible.The defendant plans to appeal, and based on the information in this article there appears to be a decent chance the Ninth Circuit will conclude Judge Nunley's decision went off the rails.